Trading speaks volumes for Centro appeal

Settlement of the long-running
Centro
litigation has opened the floodgates for trading on the restructured retail property trust.

Around 16 per cent of the stock, some 221 million shares, traded yesterday as a $200 million deal was confirmed in the Federal Court.

Of that total, Centro Retail Australia is on the hook directly for $85 million, with a further $10 million in costs involved in the four-year legal battle.

The rest of the payout comes from contributions by a rump Centro entity left over from the restructure, Centro’s insurers and its former auditor PwC, which was also sued in the case. The size of Centro’s contribution is well within brokers’ existing estimates.

In effect, the market had digested the bad news from the court case some time back. That makes this week’s settlement effectively a good news event, because there was no surprise on the downside.

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Now into its 10th week – with several more weeks scheduled – the mega-trial came to an abrupt halt this week after lawyers for the two shareholder groups struck a deal with Centro and PwC.

As the curtain closed on the courtroom drama – another hearing, on June 19, is set to approve the settlement – the action swung swiftly to the trading desks, as the stock came out of a trading halt and a big volume was turned over.

Market observers likened the turnover to the first sell-downs when Centro re-listed last December, following it restructure. Back then, the hedge funds that had converted their debt to equity controlled more than 70 per recent of the register.

That proportion has slipped steadily down to about 50 per cent by this week, analysts estimate.

Some hedge funds took another opportunity to take a profit yesterday as the litigation was settled. Buying into the stock came the natural owners of an S&P/ASX 200 Index property trust: local equities funds and properties securities funds.

It did not appear that any particular corporate entity was building a position, observers said.

The net result pushed Centro up 2.3 per cent to $1.89, well ahead of the wider market’s gains.

One senior banker said: “For a reasonably large number of Australian institutions the sort of litigation hanging over Centro was a deterrent to them investing. They were just waiting for this to get some kind of result."

He said the hedge funds invested in Centro were not long-term holders of the stock and they were looking for triggers to sell, with the next likely point being the outcome of Centro’s $665 million shopping centre sell-down.

“The hedge funds are selling and the long-only guys are more confident on Centro’s value post-litigation," another banker said.

Centro will issue a special class of shares to compensate some shareholders for the litigation costs. Its net tangible asset backing will be clipped by 16¢.